It is important to be informed that there are income payments exempt from withholding tax. Sec 2.57.5 of RR 2-98 lists the income payments exempted from withholding, thus withholding of creditable withholding tax prescribed in RR2-98 shall not apply to income payments made to the following:
A.) National government and its instrumentalities, including provincial, city or municipal governments;
B.) Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law, general or special, such as but not limited to the following:
(1) sales of real property by a corporation registered with HLURB or HUDCC...
(2) Corporations registered with the Board of Investments (BOI) and enjoying exemption from the income tax (income tax holiday) provided by RA 7916 and the Omnibus Investment Code of 1987.
(3) Corporations which are exempt from income tax under Sec. 30 of NIRC to wit, GSIS, SSS, PHIC, PCSO, PAGCOR....
Other common issues assessed by examiners which are exempt from withholding tax:
- Income payment to General Professional Partnerships
Chapter III, SEC. 26 of NIRC prescribes the Tax Liability of Members of General Professional Partnerships. - A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities.
Income payment to International Carrier
Sec. 28 (A)(3)(b)
An international carrier doing business in the Philippines shall pay a tax of two and one-half percent (2 1/2%) on its 'Gross Philippine Billings'